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Thursday, 21 June 2012

In the last few weeks we've seen the Pandora's box of national tax policy rear its ugly head again. In a couple of posts, one tonight and one tomorrow, I intend to address three issues. First there was the u-turn on what is now better known by its twitter hashtag "#pastytax", then stories of, among other things, a number of high-net-worth French citizens considering moving to the UK in response to the Eurozone's economic climate and tax policies of Francois Hollande. Finally, we've had the hysteria, hyperbole and hypocrisy abound when it was revealed that Jimmy Carr had been exploiting the K2 EBT tax loophole.

It seems as though, in this country and further afield, tax policy is no longer about what constitutes simple and sound economics for effective provision of public services and more and more about what particular stakeholders think others should be forced to pay. It creates a particularly pernicious form of corporatism, based on warped conceptions of fairness that are utterly impossible to pin down and harder still to give effect to by any sort of state mechanism whatsoever.

Take Pasty Tax. This is just the tip of the iceberg in a very messy way we, and the rest of the EU, attempt to tax consumption of goods and services. To retain high revenue while protecting the poorest from potentially regressive effects, we create exceptions. For example, we decided that residential energy provision would attract a reduced rate of 5%.

We also created an exception for food and drink, because that accounts for a significant part of family budgets, especially for low earners. But then we recognised that not all food and drink are essential in this way. So we created exceptions to the exemption. Alcohol was considered non-essential, as was chocolate, and catered food. The rationale behind the latter-most was you're not just being given a good, but a supplementary service. Either you were served food in an eating establishment or had food heated up for near immediate convenient consumption elsewhere that could not otherwise be consumed.

On its own, each rule makes some degree of sense. The problem is, it creates a culture of exceptionalism and with it perceptions of arbitrariness. Whether it's Jaffa Cakes claiming exception from VAT because they harden rather than soften when they go stale (meaning they're not a chocolate biscuit), or bakeries claiming exemption for their goods because they aren't necessarily sustained above ambient temperature right up to the point of sale, we get people trying to carve out their own little privileged position. And because of lobbying and special interests, we end up with absurd positions where a bacon roll gets charged VAT but a pasty doesn't.

And who benefits from this convenient little exemption? Not the poor. The prices of catered food are already punitive for them because of business rates and profit margins, especially for small firms. No. The real beneficiaries are Greggs. In what must have been one of the most successful instances of corporatist lobbying since Bernie Ecclestone's tobacco advertising exemption for Formula 1, they've been given a state sponsored piece of special privilege that shuts out competition from caterers of other foodstuffs. And what does that do for healthy eating among the low-earners? It leaves Glasgow with about 8-10 Greggs within a 2 mile radius of each other, entrenching a culture of heart disease and obesity.

But let's be clear, it's not Greggs' fault that our politicians are fickle, that our public consciousness is so bound up in the notion of vested interests as a good thing. It's not their fault that political lobbyists crowd around a special case like Cornish Pasties, undermining the cause of free trade that has otherwise served Europe so well. But make no mistake: their tears hail from a corporate crocodile and there's more out there ready to bite the electorate that feeds them.

The lesson of Pasty Tax is not that of a vindictive government looking to screw the Northern poor. It's about a feckless government riddled with decades of vested interest and completely unable or unwilling to defend the basic principles underpinning its own tax system. If you're going to tax hot food you have to tax it all. The "whatabout" exceptionalist and corporatist mentality is precisely what has made our tax code one of the longest, most convoluted, and inefficient instruments of government design in the world.

One of the biggest arguments for sales taxes is how easy they are to operate. We've even negated even that.